Private Credit Has a Weak Underwriting Discipline Problem

Private Credit Has a Weak Underwriting Discipline Problem

Loose underwriting standards are increasingly troubling for private credit market participants, according to Bloomberg Intelligence. “This concern has been growing for a period of time,” David Havens, BI’s senior analyst for private credit, tells Bloomberg News’ James Crombie in this special episode of the Credit Edge podcast. Weak underwriting discipline was flagged by private debt market participants in a recent global BI survey, rising in prominence compared with a poll conducted in September. In addition, direct lenders face lingering pressure from retail redemptions at business development companies. “Headlines are still going to be negative, focused on that very small portion of the market — it’s becoming slightly infectious and weighing on the wealth side of the business,” says Paul Gulberg, a senior analyst who covers global banks and asset managers. The trio also discuss the drivers of private credit growth, loan valuations, the liquidity premium and fund fees. See omnystudio.com/listener [https://omnystudio.com/listener] for privacy information.

JPMorgan Is Wary of Another Big Leap in AI-Related Spending

JPMorgan Asset Management sees value in the debt of companies building out AI, but it’s keeping a close eye on how much more they plan to spend next year. “If we’re seeing capex increase at the same rate that we saw 2025 to 2026, I think that’s probably a little bit of a red flag,” Stephanie Doyle, a portfolio manager at the $4.3 trillion firm, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Arnold Kakuda in this episode of the Credit Edge podcast. “I think the issuance is an opportunity,” said Doyle, who’s part of the money manager’s global fixed income, currency and commodities team. They also discuss the potential for credit spreads to tighten, rising net new bond issuance, the earnings outlook and growing macro risks. See omnystudio.com/listener [https://omnystudio.com/listener] for privacy information.

HarbourVest Expects Private Credit Secondaries Volume to Double

Secondary trading of private credit is on track to more than double last year’s record volume, according to HarbourVest Partners. “Through the first quarter we’re run-rating above $50 billion this year,” Greg Ciesielski, the $150 billion global private markets firm’s head of credit secondaries, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Jean-Yves Coupin in this episode of the Credit Edge podcast. “It’s certainly a buyer’s market at the moment, which is what you generally see in dislocation,” he adds. They also discuss the impact of private credit stress on pricing, opportunities to buy assets from business development companies and how HarbourVest uses AI for valuation. See omnystudio.com/listener [https://omnystudio.com/listener] for privacy information.

Citi Warns of Private Debt Risk as ‘Tourists’ Are Forced to Sell

Rookie private lenders that have to sell in a downturn are a potential threat to credit markets, according to Citi. “If the cycle turns and these tourists, rather than working out loans, just start selling them at below the economic value — what happens to the rest of the market?” Mickey Bhatia, the firm’s head of spread products, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Sam Geier in this episode of the Credit Edge podcast. “That’s a big worry,” says Bhatia. They also discuss global fund flows, investment in AI infrastructure and expansion of electronic trading to incorporate collateralized loan obligations. See omnystudio.com/listener [https://omnystudio.com/listener] for privacy information.

Sycamore Tree Tips Chemicals in Iran Jam

Middle East shipping disruptions are boosting US companies bruised by cheap Chinese supply, according to Sycamore Tree Capital Partners. “It really slows down the ability for some of those Asian-based chemical companies to produce,” Trey Parker, the asset manager’s co-founder and chief investment officer, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Phil Brendel in the latest Credit Edge podcast. “You’re going to have more US- and European-based chemical companies have an inherent advantage,” Parker added. They also discuss health-care relative value, the outlook for debt defaults, a slowdown in liability management exercises and opportunity in credit secondaries. See omnystudio.com/listener [https://omnystudio.com/listener] for privacy information.